Upendra Prasad Poudyal: Banks must adopt long-term, sustainable approach

Upendra Prasad Poudyal is the chairperson of Nabil Bank with over three decades of experience. He previously worked at Standard Chartered Bank Limited (1986–2000) and NMB Bank Limited (2000–2017). His expertise spans project finance, international banking, and leadership roles, including his tenure as President of the Nepal Bankers’ Association (2014–2016) and the Confederation of Banks and Financial Institutions Nepal (CBFIN). Poudyal is also the immediate past President of the Management Association of Nepal (MAN) and represents the Asia-Pacific chapter of the Global Alliance for Banking on Values. A staunch advocate for sustainability, he emphasizes the importance of resilience and values-driven banking.

In an interview with Kamal Dev Bhattarai and Pratik Ghimire of ApEx, Poudyal shared his insights on Nepal’s economy, challenges, and the need for sustainable banking.

As a senior banker, having worked in the banking sector for such a long time, how much do you think our country’s economy has improved overall, what are its challenges?

Nepal’s economy has faced recurring crises, from the Maoist movement to the 2015 earthquake and the Covid-19 pandemic. Each event caused economic contraction, paralyzing industries, and creating uncertainty in the banking sector. The 2015 earthquake, for instance, halted activities for a year, while the pandemic further eroded economic momentum. During this time, a pivotal regulatory change required banks to increase their capital from Rs 2bn to Rs 8bn. This bolstered their ability to finance larger projects but also intensified competition, pushing banks to adopt more business-oriented models. However, these changes were necessary for resilience and growth.

What are the current challenges faced by our economy?

Currently, our economy faces multifaceted challenges. Youth migration has depleted the workforce, business activities are shrinking, and default rates are climbing. Government capital expenditure, which should stimulate demand, remains underutilized, while liquidity and foreign exchange issues persist. Despite these setbacks, the remittance sector continues to stabilize the economy, offering a silver lining.

Confidence is critical for economic growth. How would you describe the current state of confidence in Nepal?

Confidence is alarmingly low across all sectors—from businesses to financial institutions. Reviving this confidence is crucial. The central bank could ease monetary policies to encourage investment and growth. Our GDP-to-credit ratio is high, highlighting our reliance on credit for economic activities. To address this, stakeholders—banks, businesses, and the government—must collaborate, understanding each other’s challenges and perspectives. Solutions should prioritize the economy’s long-term stability rather than short-term gains.

Is it time for banks and businesses to move beyond profit-oriented thinking?

Absolutely. We can’t see everything from one perspective. Banking and business models must adopt long-term, sustainable approaches. Banks grow with their customers, and the private sector—contributing 80 percent to the economy—grows with support from banks and the government. The country should also think that if the private sector flourishes, the government, too, flourishes. At the same time, the private sector should be aware of its dependency on the government and the banking system.

The interconnectedness of sectors is often overlooked. For instance, rising interest rates are a result of broader liquidity and cost factors but are often viewed as solely the bank's responsibility. People tend to view it as the bank’s doing solely. While banks’ assets have grown, profits have plateaued over the last five years. This demonstrates the need for a balanced, holistic approach where all stakeholders support each other for mutual benefit.

How do you see the changing perceptions towards the banking sector?

Traditionally, the banking sector is a business, and therefore profit-focused. But simultaneously, the banking sector can and should be defined in an alternate way, which I only realized eight years later. When I attended a banking conference, called the Global Alliance for Banking on Values Annual Meeting, there were different bankers with different mindsets. They always thought of a banking system aimed at delivering sustainable development with social, environmental, and economic considerations. These sets of banks work with a triple bottom-line approach to their banking model. Social and environmental impact should be considered in banking, they believed. Profit is a pillar, but there is a triple bottom line: people, planet, and profit. In this model, they are grounded in communities and focused on real economies, meaning they are based on the generation of goods and services and employment-generating ventures. The impact of banking should be positive, according to this philosophy. I want to connect this to the alternative definition of the banking sector. When resources are deployed, employment is generated, and so are goods and services. Another philosophy within the banking sector dictates that a bank should clearly understand a client’s business as well as the associated risks, and the customers’ well-being.

A bank is an institution based on trust. A bank should be resilient to outside disruptions. With that being said, banks should be able to absorb outside shocks, for example, during the covid pandemic. Risks are often compromised, and parameters could be altered in order to maintain the stability and resiliency of banks. Transparency is also a major concern in the banking sector. We need a high level of transparency in a way that is government-inclusive. No group should be able to exert undue influence on the bank’s decisions and governing system. All levels of the bank should cooperate to maintain transparency. After the global financial crisis of 2007-2008, the profit-driven concept of banking was proven wrong. Society and environment-driven banks drove the Global Alliance for Banking on Values in 2009. This value-based banking principle is entirely based on sustainability.

How aware are Nepali banks and policymakers about sustainable banking?

Awareness is growing. In 2016, I attended the Global Alliance for Banking on Values conference and was inspired to bring this philosophy to Nepal. By 2017, Nepal hosted the Alliance’s annual meeting, inaugurated by the Prime Minister. Since then, initiatives such as the Nepal Rastra Bank’s Environmental Risk Management System and green finance taxonomy have gained traction. Many banks now have sustainability managers, and academic institutions like Tribhuvan University are introducing Environmental Social Governance courses.

How will value-based banking contribute to sustainable development goals (SDGs)?

The banking sector directly impacts the seven goals of the SDGs. To safeguard the targets of the SDGs, environmentally conscious investments are essential, and value-based banking is already doing this. IFC performance standards look at social issues as well. For example, if a hydropower project requires the destruction of a religious site, we need to ensure that this can be avoided as far as possible, with reasonable compensation for the land. Banks, during project analysis, now consider social factors such as these under the value-based model. Value-based banking has all several impacts. Biodiversity and nature conservation is one significant area of impact. For example, in villages, if a Rs 15,000-20,000 investment is given for the use of induction cookers, the use of wood for cooking reduces, making an impact on nature. Another area is women’s empowerment. Wage disparity is still a prevalent issue that we need to fight. Additionally, clean energy is another aspect. We aim to replace fossil fuels. Financial inclusion is another area of concern that value-based banking addresses. Finally, peace and justice are also promoted through value-based banking.